Yen

The latest Bank of Japan minutes continued to warn over downside risks to the economy. Overall Japanese bond yields were still higher due to global inflation fears which is liable to unsettle equity markets and may discourage aggressive interest in carry trades which could, in turn, trigger renewed market volatility.

The dollar was holding just above the 104.0 level in Asian trading on Friday in cautious trading while the yen was still generally weak against the Euro.

There is still evidence of  increased yen selling by retail accounts in Japan, but these pressures are being offset by an increase in Japanese bond yields. As Wall Street weakened again on Friday, the yen strengthened back towards the 103.0 level against the US currency with markets looking to test dollar support levels below this level.

Sterling

Sterling was unable to sustain a position stronger than 0.7940 against the Euro on Friday and gradually weakened towards the 0.7970 area over the day.

The first-quarter UK GDP increase was confirmed at 0.4% in the revised release. Consumer spending was revised higher, but there were downward adjustments to exports and imports while business investment contracted over the quarter and this is not a positive long-term factor for the UK economy or currency.

MPC member Sentence was generally downbeat over economic prospects as he forecasted a significant slowdown with the possibility of recession.

Sterling will also tend to be unsettled if there is a sustained downturn in stock market prices, but these pressures should be offset to some extent by investment inflows while yield considerations will remain positive.

Swiss Franc

The Swiss currency found support around 1.0335 against the dollar on Friday and strengthened back towards 1.0220 in US trading. The franc also reversed early losses against the Euro and strengthened to highs around 1.6140 in New York.

The franc moves were again influenced strongly by degrees of risk aversion and the Swiss currency gained support from a renewed downturn on Wall Street.

National Bank Chairman Roth stated that the franc moves against the dollar had not reflected fundamentals which illustrates concern that the Swiss currency has strengthened too far. The overall comments from Roth suggested that the bank would look to maintain a steady policy in the short term, although it was willing to support the banking sector if necessary.

Source: VantagePoint Intermarket Analysis Software

Australian dollar

The overall market tone remained corrective in local trading on Friday, but the Australian dollar was able to resist further losses with support near 0.9550 against the US dollar and consolidation around 0.9580.

The near-term currency moves are likely to remain influenced strongly by trends in commodity prices and risk appetite. Higher gold prices helped the Australian currency regain the 0.96 level, but the currency was still hampered by weaker stock-market trends.

Markets will be on alert for any protests over the currency’s value by government and Reserve Bank officials. It is also likely that the central bank will look to buy US dollars to replenish reserves as part of a long-term strategy.

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